Banks receive two million complaints in six months

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Britain's banks were hit by more than two million complaints in the second half of 2009 – more than double the number recorded in the same period the year before, the City watchdog revealed yesterday.

The reason for the huge increase was that complaints about charges for unauthorised overdrafts had finally been included on lenders' books, the Financial Services Authority said.

As a whole, the financial services industry received 2.65 million complaints, against 1.51 million during the first six months of this year and 1.48m during the same period of 2009.

The barrage of criticisms came despite taxpayers injecting billions of pounds into Royal Bank of Scotland and Lloyds Banking Group to keep the two "zombie" companies afloat. While Barclays and HSBC did not require any taxpayer bailout, they were supported by measures such as the Bank of England's special liquidity scheme, which was brought in to prevent the banking system from seizing up.

Consumer groups describe the banks' attitude to charges as "outrageous". But the industry insists that if it was to lower charges to people who ran up overdrafts without agreement, banks would have to raise charges for "responsible" customers who did not.

The FSA monitors the way lenders deal with complaints but is all but powerless to take any action against them if they – as expected – reject almost all of the accusations.

Consumers are unable to tell which banks receive the most complaints, because at present the FSA does not separate the figures by company. From August, however, individual banks will be forced to publish their own data about complaint-handling, and the FSA will continue to publish industry-wide figures as it did yesterday.

Under the FSA's "firms" category, backdated overdraft complaints accounted for most of the increase in grievances against banks and building societies, which totalled 2,225,458.

The regulator said the steep rise was driven by banks handling two years' worth of backdated complaints about unauthorised overdraft charges. The complaints had been put on hold while a test case between the banks and the Office of Fair Trading over the charges was heard at the High Court. But the FSA waiver was lifted in December after the banks won the case, leading to them having to formally handle the complaints.

The number of banking complaints threatened to obscure a dismal performance by the insurance industry, which recorded 421,368 grievances between July and December, up from 281,275 for the same period in 2008 and 336,918 in the first half of last year.

Complaints volumes have risen in every set of figures the FSA has published so far. They threaten to reach new records after travellers affected by the volcanic ash cloud from Iceland begin to seek redress from insurers that are refusing to pay out.

In general, complaints about financial services have been rising steadily, with banks accounting for most of them even before the overdraft issue.

The British Bankers' Association said: "Naturally, it is disappointing that the volume [of complaints] is so high, but much of this results from processing complaints that have been on hold pending the outcome of the recent court case. In an industry... with billions of transactions handled every year, there will inevitably be some instances where something will go wrong, but the vast majority of customers experience no problems at all.

"It doesn't necessarily follow that when a customer makes a complaint the bank has been at fault, but having said that, banks are committed to ensuring they handle all complaints professionally and efficiently."